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Pound Weakens Versus Euro, as UK Inflation Outpaces Wage Rises

by Peter Lavelle

Welcome to Pure FX’s weekly outlook + summary of the interbank foreign exchange rates.

Pound to euro

Sterling descends a rung of the ladder versus the euro! The pound to euro interbank exchange rate fell -0.5 cents last week, to around 1.1175, close to a 6-week low.

The pound folded its hand of cards last week, first because UK wages rose just +2.2% in August, well below inflation. This was the 6th month on the trot where UK wages increased less than prices, thereby putting pressure on Britons' living standards. What's more, sterling also sank like a stone, as UK retail sales fell -0.8% in September, far beyond market forecasts for a -0.1% dip.

Meanwhile, the euro rose on an air current last week, first because the Eurozone's current account surplus (CAD) ballooned. To be specific, Europe's CAD bulged to +€33.3 billion in August, far exceeding forecasts for +€26.3bn, as businesses in the currency bloc exported more. In addition, the euro also flew higher, as markets played down fears that Catalonia may secede from Spain.

Outlook

That said, looking ahead, sterling may rebound versus the euro. This is because, first, the EU has agreed to start internal talks about a 'transition deal' with the UK, over Brexit. This bodes well for an agreement between Blighty and Europe. Moreover, the pound may also shoot up, as UK inflation reached 3.0% last month, putting pressure on the Bank of England to hike UK interest rates.

Pound to Swiss franc

The pound to Swiss franc interbank exchange rate sticks to its guns! Sterling held between 1.2925 and 1.2950 versus the Swissy last week.

The franc stayed put last week, first because Switzerland's trade surplus ballooned to +Fr2,918m last month, easily knocking aside predictions for +Fr2,470m. In particular, Swiss companies exported more in September. Yet on the other hand, the franc lost favour, as markets sold Switzerland's safe haven currency, as they decided that Catalonia is unlikely to secede from Spain soon.

Pound to US dollar

Sterling sinks into the swamp versus the greenback! The pound to US dollar interbank exchange rate dived -0.75 cents last week, to 1.3175.

The US dollar won out last week, first because the US Senate approved President Donald Trump's tax reform plans. This is the 1st step to cutting taxes in America, and thus accelerating GDP growth. Moreover, the buck also triumphed, as US Federal Reserve chairwoman Janet Yellen played up the US economic growth outlook, saying that 'the labour market has continued to strengthen.'

Outlook

What's more, looking ahead, the greenback could continue to edge its way up. Why? Well first, because it's thought very likely that the Federal Reserve will lift interest rates higher in December, above their current 1.00-1.25%. Furthermore, the dollar could also remain mighty, as both the New York Empire and Philadelphia Fed manufacturing indices showed that US factories are humming.

Pound to Australian dollar

The pound to Australian dollar interbank exchange rate dives like a lemming! Sterling dipped -0.5 cents last week, to 1.6825, its weakest since September 14th.

The Australian dollar came out swinging last week, chiefly because unemployment Down Under fell -0.1% in September, to 5.5%. In particular, Aussie firms created +19,800 new jobs last month, handily beating forecasts for +15,000 new posts. In addition, the AU dollar also reached for the stars last week, as the Reserve Bank of Australia didn't talk down the Aussie in its latest minutes.

Pound to New Zealand dollar

Sterling goes to infinity and beyond versus the kiwi dollar! The pound to New Zealand dollar interbank exchange rate jumped +4.25 cents last week, to 1.89, its strongest since June 24th.

The kiwi dollar tumbled last week, chiefly because electoral kingmaker Winston Peters agreed to form a coalition government with New Zealand Labour. This has dragged down the kiwi dollar, first because NZ Labour has promised to lift taxes in the land of Middle Earth, threatening New Zealand's economic prosperity, and to reform the RBNZ, which may lead to lower NZ interest rates.

Pound to Canadian dollar

The pound to Canadian dollar interbank exchange rate stays range-bound! Sterling stuck between 1.6575 and 1.66 versus the loonie dollar last week.

The loonie dollar stayed in neutral last week, because Canada's economic data was mixed. On the bright side, Canada's manufacturing shipments jumped +1.6% in August, the most in 8 months, and handily knocking aside +1.0% forecasts. Yet less positively, Canada's retail sales declined -0.3% in August, below hopes for +0.5%, as Canadians spent less on home improvement goods.

Outlook

What's more, looking ahead, the Canadian dollar could continue to spin its wheels. Why? Well chiefly, because the outlook is cloudy for the renegotiations of the North America Free Trade Agreement (NAFTA). In particular, Mexico has rejected the USA's demand to increase US content in auto-mobiles. What's more, the Bank of Canada looks set to keep interest rates steady at 1.0%.

Pound to South African rand

The pound to South African rand interbank exchange rate gains! Sterling jumped +2.49% against the rand last week, to 18.08.

The rand bit the dust last week, chiefly because rumours are flying that South Africa's Jacob Zuma may soon fire his deputy, Cyril Ramaphosa. This has eaten into the rand, because Mr. Ramaphosa is seen as a possible replacement to Mr. Zuma, at the ANC leadership vote in December. Given this, these rumours add to the uncertainty about who will lead the ANC from next year.

Outlook

That said though, the rand could soon find its feet. This is because South Africa's economy is holding its own, in spite of the political uncertainty. To start with, retail sales in the springbok nation jumped +5.5% in August compared to a year ago, trouncing predictions for +2.3%. Moreover, SA inflation reached +5.1% in September, lifting the odds that the SARB may soon lift interest rates.

Pound to Japanese yen

Sterling inches ahead versus the yen! The pound to Japanese yen interbank exchange rate climbed +0.57% last week, to 149.53.

The yen went wobbly at the knees last week, because Japan's economy showed signs of slowing. First of all, Japan's all-industry activity index jumped up just +0.1% in August, -0.1% below forecasts. What's more, Japan's exports flew higher just +14.1% in September compared to 12 months ago, -0.8% beneath predictions, while Japanese import growth also disappointed too.

Outlook

What's more, looking ahead, the pound could continue to fly high versus the Japanese yen. This is because Japanese prime minister Shinzo Abe easily won re-election, at a vote over the weekend. This could weaken the yen, because Mr. Abe supports the Bank of Japan's policy of keeping interest rates low, and injecting Japan's economy with vast stimulus, to drag down the yen, and lift exports.

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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or email peter.lavelle@purefx.co.uk.

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